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(Reuters) - Citigroup Inc on Monday reported a stronger-than-expected 26 percent rise in adjusted quarterly profit as stronger home prices reduced losses on mortgages and bond trading revenue jumped.
The biggest boosts in profit came from its securities and banking unit, where bond trading revenue rose 18 percent, while stock trading revenue soared 68 percent, and underwriting and advisory was up 21 percent.
At the Citi Holdings unit, which houses businesses and assets the bank is looking to shed, the bank set aside less money to cover bad mortgages as the U.S. housing market showed signs of recovery.
Citigroup shares rose 2.6 percent to $52.10 in early trading.
The results underscored how the bank is returning to normal after getting walloped during the financial crisis and needing three government rescues.
"Citi is a restructuring story and it is an emerging markets story," analyst Fred Cannon of Keefe, Bruyette & Woods said before the company reported results.
Adjusted net income at the third-largest U.S. bank by assets rose to $3.89 billion, or $1.25 per share, in the second quarter, from $3.08 billion, or $1 per share, a year earlier.
Adjusted results excluded the positive impact of changes in the value of the company's debt.
Analysts, on average, expected earnings of $1.17 per share, excluding some items, according to Thomson Reuters I/B/E/S.
Revenue from fixed income markets, part of the securities and banking unit, rose to $3.37 billion from $2.86 billion, while equity market revenue soared to $942 million from $561 million.
Trading revenue in the year-earlier quarter was weak across the industry as the European debt crisis brewed.
Citigroup's net credit losses declined to $2.61 billion from $3.49 billion as higher house prices lifted the value of the home mortgage assets held since the financial crisis.
In Citi Holdings, it set aside $451 million for bad loans, benefits and claims, down from $1.23 billion in the same quarter last year.
Citi's shares have risen about 28 percent this year through Friday's close, slightly better than the KBW index of bank stocks. They have doubled in value in the past year.
The stock rose through the end of May on investor confidence in the company's restructuring and its growth potential in emerging markets, but have faltered since early June amid signs emerging market economies were slowing down.
Chief Executive Mike Corbat has sought to cut costs and increase earnings since October, when Citigroup's board put him in the job after ousting Vikram Pandit.
But Corbat and Chairman Michael O'Neill have said they are sticking with Pandit's strategy of positioning the company to benefit from global growth in emerging markets, urbanization and increasing digital commerce.
Citigroup is the most global of the big U.S. banks. About 58 percent of its revenue last year came from outside of North America.
Reporting by David Henry; Additional reporting by Tanya Agrawal in Bangalore; Editing by Dan Wilchins, Ted Kerr, and Jeffrey Benkoe